Among 10 fund houses that HDFC Securities has covered in its report, Motilal Oswal MF has the highest share of direct assets (36.6%) in the industry. However, past data shows that, the share of direct plan in total assets of the fund house has declined from 39.9% in FY 16 to 36.6% in September 2018. Kotak is next with direct plans accounting for 25.5%.
HDFC Securities has covered 10 fund houses – HDFC, ICICI, SBI, Aditya Birla, UTI, Franklin Templeton, Axis, Reliance Nippon, Kotak and Motilal Oswal in its report.
Typically, institutional investors tend to invest direct in debt while majority of the retail AUM comes through the regular route. As per AMFI data, majority of the assets of Motilal Oswal MF are invested in equity (around 95% as per September 2018 AMFI data). Thus, majority of the direct assets of the fund house can be assumed be in equity schemes. This puts Motilal Oswal MF ahead of industry average of around 11% in terms of direct equity assets (as per September 2018 AMFI data).
Amongst the fund houses covered in the report, Axis MF (7.4%) and UTI MF (8.4%) have the lowest direct equity AUM. UTI MF in fact saw its direct AUM share drop significantly (33.2% in 2016 to 8.7% in 2018) in the last few years.
While Franklin Templeton MF, HDFC MF, Motilal Oswal MF and SBI MF saw their direct assets rise in the first nine months of 2018, the other fund houses in the list saw their direct assets remain steady during the period.
In absolute terms, HDFC MF, ICICI MF and Aditya Birla MF hold the top spots owing to their large asset base. HDFC MF has the highest direct AUM of close to Rs. 49,200 crore in September 2018, followed by ICICI MF with nearly Rs. 47,000 crore and Aditya Birla Sun Life MF with around Rs. 46,000 crore.
While direct plans have been around since 2013, they are yet to pick up. One reason for that is the crucial role played by distributors in educating clients and recommending them the most suitable products.
As per the report, 40% of debt AUM is sourced through direct channel as institutional investors dominate the debt segment and they tend to invest through direct plan. On the other hand, majority of the equity AUM is still sourced by distributors. Though there has been an increase in direct equity AUM over the years, the pace of growth is slow. Between March 15 and September 18 the share of direct equity AUM, has risen by merely 5% (11% in March 15 to 16% in September 18).
According to Madhukar Ladha, analyst, HDFC Securities and the report’s author, despite direct AUM being more profitable, mutual funds have not promoted direct channel. Though direct plans would give fund houses better pricing power, aggressively promoting these plans is likely to upset the distribution community.
